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Residential Real Estate Brokerage Efficiency and the Implications of Franchising: A Bayesian Approach

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  • Danielle Lewis
  • Randy Anderson

Abstract

This paper provides substantial evidence that real estate brokerage firms choosing to franchise are more cost‐efficient than firms that remain independent. It uses 1995 cost data obtained from a nationwide survey of real estate brokerages to analyze the differences in firm efficiency across firm type—franchised and independent. We estimate a single stochastic cost frontier using Bayesian statistics and measure firm efficiency relative to that frontier conditional on firm type. The results indicate that real estate brokerages are relatively efficient, implying a competitive market, but franchised brokerages are substantially more efficient than their independent counterparts.

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  • Danielle Lewis & Randy Anderson, 1999. "Residential Real Estate Brokerage Efficiency and the Implications of Franchising: A Bayesian Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 543-560, September.
    • Handle: RePEc:bla:reesec:v:27:y:1999:i:3:p:543-560
    DOI: 10.1111/1540-6229.00783
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    1. Koop, Gary & Steel, Mark F.J. & Osiewalski, Jacek, 1992. "Posterior analysis of stochastic frontier models using Gibbs sampling," DES - Working Papers. Statistics and Econometrics. WS 3677, Universidad Carlos III de Madrid. Departamento de Estadística.
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    1. Oum, Tae H. & Yan, Jia & Yu, Chunyan, 2008. "Ownership forms matter for airport efficiency: A stochastic frontier investigation of worldwide airports," Journal of Urban Economics, Elsevier, vol. 64(2), pages 422-435, September.
    2. John Benjamin & Peter Chinloy & Daniel Winkler, 2007. "Sorting, Franchising and Real Estate Brokerage Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 189-206, February.
    3. Jonathan Wiley & Justin Benefield & Marcus Allen, 2014. "Cyclical Determinants of Brokerage Commission Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 196-219, January.
    4. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2006. "Franchising in Residential Brokerage," Journal of Real Estate Research, American Real Estate Society, vol. 28(1), pages 61-70.

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